Paying And Conversion Agency Agreement

NOTE PURCHASE,
PAYING AND CONVERSION AGENCY AGREEMENT


BIGMAR, INC.
JOHNSTOWN, OHIO, U.S.A.


CHF 3'000'000.--
4% Convertible Notes of 1999 due October 29, 2003


October 26, 1999


TABLE OF CONTENTS


Page


DEFINITIONS


I. SUBJECT.............................................................2 II. ANNEXES.............................................................3 III. SALES RESTRICTIONS..................................................3 IV. COMMISSION AND EXPENSES.............................................8 V. WARRANTIES..........................................................9 VI. PAYMENT TO THE COMPANY.............................................11 VII. CONDITIONS TO THE OBLIGATIONS OF BANCA DEL GOTTARDO................12 VIII. INFORMATION MEMORANDUM.............................................13 IX. PRINTING OF THE NOTES..............................................13 X. SERVICING OF THE NOTES.............................................14 XI. CANCELLATION OF NOTES AND COUPONS..................................16 XII. COVENANTS..........................................................16 XIII. RIGHT OF TERMINATION...............................................18 XIV. COMMUNICATION......................................................19 XV. .AND JURISDICTION..................................................19 XVI. EFFECTIVENESS......................................................20 XVII. CURRENCY INDEMNITY.................................................20 XVIII. ENTIRE AGREEMENT...................................................21 XIX. AMENDMENT, CANCELLATION AND WAIVER.................................21


Annex A: Terms of the Notes Annex B: Form of Definitive Note (face) Annex C: Form of Interest Coupons Annex D: Form of Permanent Global Note Annex E: Conversion Agency Agreement Exhibit 1 to Annex E: Conversion Provisions Annex F: Form of Certificate of No Material Adverse Change Annex G: Specimen signature form Annex H: Certificate of completion of distribution Annex I: Certificate of nonavailability to United States persons or persons
within the United States Annex K: Certification of non-U.S. Beneficial Ownership and Filing Requirements Annex L: Certification of non-U.S. Beneficial Ownership and Filing Requirements


- i -


NOTE PURCHASE, PAYING AND CONVERSION AGENCY AGREEMENT


entered into effective as of October 26, 1999


between


BIGMAR, INC.


being a corporation existing under the laws of the State of Delaware, whose head office is situated at 9711 Sportsman Club Road, Johnstown, Ohio 43031, U.S.A.,


(hereinafter called the "Company")


on the one part


and


BANCA DEL GOTTARDO


being a corporation duly organized with limited liability and existing under the laws of Switzerland, whose registered office is situated at Viale Stefano Franscini 8, 6901 Lugano, Switzerland,


on the other part


Some Definitions


The Company's 4% Convertible Notes of 1999 due October 29, 2003, are referred to herein as the "Notes".


Until the Notes have been printed in definitive form, if printed, pursuant to Article IX hereof, the expression "Notes" herein shall include entitlements under the Permanent Global Note, and the expressions "Noteholder(s)" and "Couponholder(s)", mutatis mutandis, shall mean and include persons and entities entitled to the benefits under the Permanent Global Note. Each Noteholder possesses a co-ownership in the Permanent Global Note in relation to the principal amount of Notes of which he is an owner. "Permanent Global Note" means a global note for the total principal amount of Swiss Francs ("CHF") 3'000'000.-- issued in bearer form and representing 60 single Notes each in the amount of CHF 50'000.-- and representing the aforementioned total principal


amount. The Permanent Global Note will be destroyed by Banca del Gottardo when the Notes are printed, if printed. Banca del Gottardo shall promptly after destruction provide to the Company a written certificate that the Permanent Global Note has been destroyed.


I. SUBJECT


Subject to the terms and conditions hereof


- the Company, pursuant to authorization by its Board of Directors,
agrees to issue and sell to Banca del Gottardo CHF 3'000'000.-- Notes
at a price of 100(degree)%0 of their principal amount and


- Banca del Gottardo agrees not later than October 29, 1999


(1) to purchase (i.e. underwrite) on a firm basis for CHF
-----------------------------------------------------------------
3'000'000.-- Notes at a price of 100% of their principal amount,
-----------------------------------------------------------------
and
---


(2) to offer the Notes in a placement exclusively to its clients and
-----------------------------------------------------------------
other financial institutions at a price of 100% of their
-----------------------------------------------------------------
principal amount,
----------------


with a total principal amount of CHF 3'000'000.--
(Swiss Francs three
million)


maturing on October 29, 2003


bearing interest at the rate of 4 % per annum, payable semi-
annually in arrear each on
October 29 and April 29,
commencing April 29, 2000
until maturity


The aggregate amount for which Notes are sold are hereinafter referred to
as the "Proceeds".


The net Proceeds of the Notes will be utilized by the Company for the
financing of working capital and general corporate purposes.


Banca del Gottardo shall not have any responsibility for or be obliged to
concern itself with the application of the net Proceeds of the Notes.


-2-


II. ANNEXES


The contents of each of the Annexes attached hereto, i.e.


Annex A: Terms of the Notes
Annex B: Form of Definitive Note (face)
Annex C: Form of Interest Coupons
Annex D: Form of Permanent Global Note
Annex E: Conversion Agency Agreement Exhibit 1 to Annex E: Conversion
Provisions
Annex F: Form of Certificate of No Material Adverse Change
Annex G: Specimen signature form
Annex H: Certificate of completion of distribution
Annex I: Certificate of nonavailability to United States persons or persons
within the United States
Annex K Certification of non-U.S. Beneficial Ownership and Filing
Requirements
Annex L Certification of non-U.S. Beneficial Ownership and Filing
Requirements


shall constitute an integral part of this Agreement.


III. SALES RESTRICTIONS


(a) The Notes to be issued pursuant to this Agreement have not been
registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered, sold or delivered,
directly or indirectly, in the United States or to, or for the account
of, any U.S. person except in transactions exempt from the
registration requirements of the Securities Act.


(b) As to the Company, the Notes are intended to be obligations that are
not required to be in registered form for purposes of United States
federal tax laws and the principal (to the extent characterized as
original issue discount) and interest payable on the Notes are
intended to be "portfolio interest" under Sections 871(h) and 881(c)
of the United States Internal Revenue Code of 1986 as amended (the
"Code"). Accordingly, the Notes may not, as part of any part of the
initial distribution, be offered for sale or resale, sold or
delivered, directly or indirectly, to a person in the United States or
to a United States person. Banca del Gottardo (i) agrees and
represents that no Notes will be offered, sold or delivered to or on
behalf of a person within the United States or to a United States
person, (ii) represents and agrees that (a) during the period
beginning on the earlier of the first date that the Notes are offered


-3-


or the date on which the Notes are issued and ending on the date one
(1) year after the later of the date upon which the Notes were first
offered or the date of closing of this offering (the "Restricted
Period"), it will not offer or sell, Notes to a person who is within
the United States or to a United States person, (b) it has not
delivered and will not deliver within the United States the Permanent
Global Note, the Notes or any definitive Notes or coupons, if printed,
that are sold during the Restricted Period, (c) it has and throughout
the Restricted Period will have in effect: procedures reasonably
designed to ensure that its employees or agents who are directly
engaged in selling Notes are aware that such Notes may not be offered
or sold during the Restricted Period to a person who is within the
United States or to a United States person and (d) it has not entered
and will not enter into any contractual arrangement with respect to
the distribution and delivery of the Notes, except with its affiliates
or with the prior written consent of the Company, (iii) represents and
agrees with respect to each affiliate that acquires from it Notes for
the purpose of offering or selling such Notes during the Restricted
Period, repeating and confirming the representations and agreements
contained in clauses (ii)(a), (b), (c) and (d) on each such
affiliate's behalf, (iv) represents and agrees that it will not sell
or deliver Notes to a holder which is (a) immediately after the sale
or delivery, a "10-percent. shareholder" of the Company within the
meaning of Section 871(h)(3) of the Code, (b) a bank on an extension
of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business, (c) a controlled foreign
corporation which is related to the Company under section 864(d)(4) of
the Code, or (d) within a foreign country which the United States.
Secretary of the Treasury has determined under section 871(h)(6) of
the Code that the exchange of information with the foreign country is
inadequate to prevent evasion of United States tax by United States
persons, (v) represents and agrees that (a) on or before the delivery
of the Permanent Global Note by the Company, Banca del Gottardo will
deliver to the Company the certificate in the form attached hereto as
Annex I, and (b) Banca del Gottardo will deliver to the Company the
certificate in the form attached hereto as Annex H within ten business
days of the commencement of the Restricted Period and, (vi) represents
and agrees that the sale of the Notes shall be made upon
certification, in the form attached hereto as Annex K, that the


-4-


beneficial owners of the Notes either (i) will not be United States
persons or U.S. persons or (ii) are financial institutions (within the
meaning of United States Treasury Regulation Section
1.165.12(c)(1)(v)) located outside the United States that are not
United States persons and are purchasing such Notes for resale during
the Restricted Period and certify they are not acquiring the Notes for
purposes of resale directly to a United States person or to a person
within the United States. Any certificates provided by a clearing
organization must be based on statements provided to it by its
members. Banca del Gottardo agrees to furnish to the Company a
properly completed certificate with respect to each Note, in the form
attached hereto as Annex K (and, in the case of clearing
organizations, require statements of members of the clearing
organization.), on the earlier of the date of the first actual payment
of interest on the Note or the date of delivery of any instrument or
document transferring an interest in or entitlement under the
Permanent Global Note. For purposes of this Agreement, whether an
offer, sale or delivery is made to a person within the United States
or to a United States person will be determined under the rules set
out in the Code, and United States Treasury Regulation Section
1.163-5(c)(2)(i)(D). Banca del Gottardo agrees that it will comply
fully with the selling restrictions set out in this Sub-Section (b)
and, in particular, Banca del Gottardo hereby covenants and agrees to
the effect set out in clauses (ii) and (iii) of the second preceding
sentence.


(c) The Notes will be represented by a permanent Global Convertible Note
(the "Permanent Global Note"), without interest coupons, the Permanent
Global Note to be deposited by the Company with Banca del Gottardo, on
the Payment Date. The Permanent Global Note may be exchanged, as a
whole or in part, for appropriate definitive Notes, if printed, in
bearer form in the denominations of CHF 50'000.-- with interest
coupons (the "Coupons") attached, in bearer form not earlier than 1
year after the later of the date on which the Notes are first offered
or the Payment Date, before which time no Notes represented by the
Permanent Global Note or interest therein may be offered, sold or
transferred into the United States or to a U.S. person. Such exchange
shall be made upon certification, in the form attached hereto as Annex


-5-


L, that the beneficial owners of the Notes either (i) are not United
States persons or U.S. persons or (ii) are financial institutions
(within the meaning of United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that are not
United States persons and have purchased such Notes for resale during
the Restricted Period and certify they have not acquired the Notes for
purposes of resale directly or indirectly to a United States person or
to a person within the United States. Any certificates provided by a
clearing organization must be based on statements provided to it by
its members. Banca del Gottardo agrees to furnish to the Company a
properly completed certificate with respect to each Note, in the form
attached hereto as Annex L (and, in the case of clearing
organizations, required statements of members of the clearing
organization), on the earlier of the date of the first actual payment
of interest on the Note or the date of delivery by the Company of the
Note in definitive form.


(d) In this Agreement, references to "dollars" and "USD" are to United
States dollars, the term "United States" means the United States of
America (including the States and the District of Columbia), its
territories, its possessions and other areas subject to its
jurisdiction, and the term "United States person" means a citizen or
resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income
of which is subject to United States federal income taxation
regardless of its source, "U.S. person" shall have the meaning set
forth in Sections 230.901 through 904 of Title 17 of the United States
Code of Federal Regulations ("Regulation S.').


(e) The following legends will appear on the Permanent Global Note and all
Notes and Coupons, if printed, issued pursuant to the Offer: (i) "Any
United States person who holds this obligation will be subject to
limitations under the United States income tax laws, including the
limitations provided in sections 1650) and 1287(a) of the Internal
Revenue Code", and (ii) "This Note has not been and will not be
registered under the United Stated Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered, sold or delivered,


-6-


directly or indirectly, in the United States or to, or for the benefit
of, any U.S. person (as such terms are defined in Regulation S under
the Securities Act) unless this Note is registered under the
Securities Act or an exemption from the registration requirements of
the Securities Act is available." The sections referred to in the
legend provide that, with certain exceptions, a United States person
will not be permitted to deduct any loss, and will not be eligible for
capital gain treatment with respect to any gain, realized on a sale,
exchange or redemption of such Notes or Coupons.


(f) The Company represents, warrants and covenants that the Notes have not
been and shall not be offered or sold except in accordance with Rule
903 of Regulation S promulgated under the Securities Act or in a
transaction exempt from the registration requirements of the
Securities Act. Each of the Company and Banca del Gottardo represents,
warrants and covenants that (i) none of it, its affiliates or any
person acting on its behalf has engaged or will engage in any directed
selling efforts (as defined in Rule 902 of Regulation S promulgated
under the Securities Act) in the United States and it has complied and
will comply with the offering restrictions of Regulation S under the
Securities Act in connection with the offer of the Notes, (ii) none of
it, its affiliates or any person acting on its behalf has utilized or
will utilize any form of general solicitation or general advertising
(as such terms are used in Regulation D promulgated under the
Securities Act) in connection with the offer of the Notes in the
United States, (iii) none of it, its affiliates or any person acting
on its behalf has made or will make an offer of the Notes in
circumstances that would require the registration of the Notes under
the Securities Act and (iv) requests to purchase Notes shall be
accepted only from persons who are not within the United States.


(g) Banca del Gottardo has been advised by the Company and acknowledges
and confirms that it is aware (a) that a violation or breach of any of
the terms and conditions of Article III of this Agreement could
directly cause the Company to become subject to damages and
liabilities (including, but not limited to, excise taxes, a loss of
the interest deduction and assumption of withholding taxes) under
various United States securities and tax laws, and (b) that, as a
consequence, Banca del Gottardo shall defend, indemnify and save
harmless the Company, its officers, directors, agents and employees


-7-


from any and all third party claims, demands, suits or proceedings
(including reasonable legal fees and expenses) arising out of any
breach or alleged breach of any of the terms or conditions of Article
III of this Agreement, except to the extent the claim, demand, suit or
proceeding arises out of the negligence or willful misconduct of the
Company. In seeking indemnification, the Company shall give prompt
notice of the claim, demand, suit or proceeding to Banca del Gottardo,
cooperate with Banca del Gottardo, and allow Banca del Gottardo to
control the defense.


IV. COMMISSION AND EXPENSES


(a) The Company will pay on October 29, 1999 Lugano time (the "Closing
Date") to Banca del Gottardo


(1) a managing and underwriting commission of 596 calculated on the
-----------------------------------------------------------------
principal amount of the Notes
-----------------------------


(2) out of pocket expenses of CHF 10'000.--
---------------------------------------


The payment by the Company of (1) and (2) above will be made by deduction from the payment by Banca del Gottardo to the Company of the Proceeds, resulting in the Net Proceeds as per Article VI.


(b) The Company shall further bear when ascertainable and due


- all present or future taxes, duties or other- charges levied by
or within the United States of America in connection with the
execution and delivery of this Agreement, the Permanent Global
Note (excluding tax on interest or principal on the Notes which
is addressed in Annex A); and


- the commissions and expenses for the servicing and the conversion
of the Notes as per Article X;


(c) The Company will reimburse Banca del Gottardo on first demand for all
reasonable bank charges, reasonable legal fees and other reasonable
costs and expenses incurred or to be incurred by Banca del Gottardo in
case of or in connection with reorganization, merger, restructuring or
default, actual or threatened, of the Company as well as in connection


-8-


with the convening of a Noteholders' meeting and the preservation and
enforcement of any of the rights under this Agreement, the Permanent
Global Note or the Notes.


(d) Banca del Gottardo shall bear


- all costs and expenses in connection with the initial offering
and placement of the Notes incurred by it.


Banca del Gottardo shall further bear


- the cost for the printing and delivery to the holders of the
definitive Notes, if printed, incurred by Banca del Gottardo on
behalf of the Company.


- all costs incurred by it in connection with the offering,
including the printing in Switzerland of the Information
Memorandum relating to the Notes.


V. WARRANTIES


(a) The Company warrants to and for the benefit of Banca del Gottardo
that:


(1) Status: it is a corporation duly incorporated and existing in
good standing under the laws of the State of Delaware capable of
suing and being sued and has the power and authority to own its
assets and to conduct the business which it presently conducts;


(2) Powers: it has the power to enter into, exercise its rights and
perform and comply with its obligations under this Agreement;


(3) Authorization and Consents: except as to the registration
requirements provided for herein, all actions, conditions and
things required by the laws of the State of Delaware and the
United States of America have been taken, fulfilled and done
(including the obtaining of any necessary consents) in order


(a) to enable it lawfully to enter into, exercise its rights and
perform and comply with its obligations under this
Agreement; and


(b) to ensure that those obligations are legally binding and
enforceable in accordance with their terms subject to
general equity principles, to applicable bankruptcy,
insolvency, conservatorship, reorganization and other
similar debtor relief laws, and to other laws establishing


-9-


liens and priorities or otherwise relating to or affecting
creditors-rights;


(4) Non-Violation of Laws, etc: its entry into, and exercise of its
rights and/or performance of or compliance with its obligations
under this Agreement, the terms of the Permanent Global Note and
the Notes do not and will not violate in any material way


(a) any law to which it is subject; or


(b) its Certificate of Incorporation; or


(c) except for matters for which the Company has received a
waiver, any agreement to which it is a party or which is
binding on it or its assets, an ...